What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-19 compared with 2020-05-20 · 157 added, 116 removed, 574 unchanged (32% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended Six Months Ended

May 2, 2020 May 4, 2019 May 2, 2020 May 4, 2019

Three Months Ended Nine Months Ended

August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019

Revenue $ 1,456,136 $ 1,480,143 $ 4,076,761 $ 4,547,846

24 unchanged sentences

(in thousands)

Three Months Ended Six Months Ended

May 2, 2020 May 4, 2019 May 2, 2020 May 4, 2019

Three Months Ended Nine Months Ended

August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019

Net income $ 362,665 $ 362,374 $ 834,235 $ 1,085,317

5 unchanged sentences

( 1,579 ) 1,185 68 1,551

Other comprehensive loss ( 74,855 ) ( 18,000 ) ( 86,824 ) ( 37,581 )

Other comprehensive income (loss) 4,073 ( 57,652 ) ( 82,751 ) ( 95,233 )

Comprehensive income $ 366,738 $ 304,722 $ 751,484 $ 990,084

3 unchanged sentences

(in thousands, except share and per share amounts)

May 2, 2020 November 2, 2019

August 1, 2020 November 2, 2019

Current Assets

46 unchanged sentences

(in thousands)

Three Months Ended May 2, 2020

Three Months Ended August 1, 2020

Capital in Accumulated

1 unchanged sentence

Shares Amount Par Value Earnings Loss

BALANCE, FEBRUARY 1, 2020

BALANCE, MAY 2, 2020

368,425 $ 61,405 $ 4,861,013 $ 6,945,442 $ ( 277,002 )

3 unchanged sentences

Stock-based compensation expense 39,560

Other comprehensive loss ( 74,855 )

Other comprehensive income 4,073

Common stock repurchased ( 151 ) ( 25 ) ( 17,626 )

BALANCE, MAY 2, 2020

BALANCE, AUGUST 1, 2020

369,166 $ 61,529 $ 4,909,651 $ 7,079,309 $ ( 272,929 )

Six Months Ended May 2, 2020

Nine Months Ended August 1, 2020

Capital in Accumulated

4 unchanged sentences

Effect of Accounting Standards Update 2018-02

2,379 ( 2,379 )

Net income 834,235

5 unchanged sentences

Common stock repurchased ( 2,202 ) ( 367 ) ( 236,898 )

BALANCE, MAY 2, 2020 368,425 $ 61,405 $ 4,861,013 $ 6,945,442 $ ( 277,002 )

BALANCE, AUGUST 1, 2020 369,166 $ 61,529 $ 4,909,651 $ 7,079,309 $ ( 272,929 )

See accompanying notes.

2 unchanged sentences

(in thousands)

Three Months Ended May 4, 2019

Three Months Ended August 3, 2019

Capital in Accumulated

1 unchanged sentence

Shares Amount Par Value Earnings Loss

BALANCE, FEBRUARY 2, 2019 368,314 $ 61,387 $ 5,111,058 $ 6,491,013 $ ( 78,021 )

BALANCE, MAY 4, 2019 369,761 $ 61,628 $ 5,117,202 $ 6,659,449 $ ( 96,021 )

Net income 362,374

4 unchanged sentences

Common stock repurchased ( 1,022 ) ( 170 ) ( 111,831 )

BALANCE, MAY 4, 2019

BALANCE, AUGUST 3, 2019

369,406 $ 61,569 $ 5,060,586 $ 6,821,755 $ ( 153,673 )

Six Months Ended May 4, 2019

Nine Months Ended August 3, 2019

Capital in Accumulated

10 unchanged sentences

Common stock repurchased ( 4,561 ) ( 760 ) ( 439,856 )

BALANCE, MAY 4, 2019 369,761 $ 61,628 $ 5,117,202 $ 6,659,449 $ ( 96,021 )

BALANCE, AUGUST 3, 2019 369,406 $ 61,569 $ 5,060,586 $ 6,821,755 $ ( 153,673 )

(1) Balances have been restated to reflect the full retrospective adoption of Accounting Standards Update ASU 2014-09, Revenue from Contracts with Customers , adopted by the Company in fiscal 2019.

3 unchanged sentences

(in thousands)

Six Months Ended

May 2, 2020 May 4, 2019

Nine Months Ended

August 1, 2020 August 3, 2019

Cash flows from operating activities:

13 unchanged sentences

Additions to property, plant and equipment ( 135,804 ) ( 224,297 )

Payments for acquisitions, net of cash acquired ( 12,763 ) —

Changes in other assets ( 1,214 ) ( 5,132 )

2 unchanged sentences

Proceeds from debt 395,646 1,250,000

Early termination of debt — ( 1,250,000 )

Proceeds from revolver 350,000 75,000

13 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED MAY 2, 2020

FOR THE THREE AND NINE MONTHS ENDED AUGUST 1, 2020

(all tabular amounts in thousands except per share amounts and percentages)

4 unchanged sentences

Certain amounts reported in previous periods have been reclassified to conform to the fiscal 2020 presentation.

Proposed acquisition of Maxim Integrated Products, Inc.

On July 12, 2020, the Company entered into a definitive agreement (the Merger Agreement) to acquire Maxim Integrated Products, Inc.

(Maxim), an independent manufacturer of innovative analog and mixed-signal products and technologies.

See Note 15, Acquisitions , for additional information.

Note 2 – Leases

12 unchanged sentences

If these costs are variable costs they are not included in the measurement of the right-of-use assets and lease liabilities, but are expensed when the event determining the amount of variable consideration to be paid occurs.

The Company’s leases have remaining lease terms of less than one year to approximately twenty years , some of which may include options to extend the initial term of the lease.

The Company’s leases have remaining lease terms of less than one year to approximately twenty-five years , some of which may include options to extend the initial term of the lease.

These options are included in determining the initial lease term at lease commencement only if the Company is reasonably certain to exercise the option.

1 unchanged sentence

For leases with terms of twelve months or less the Company recognizes the related lease payments as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable.

The following table presents supplemental balance sheet information related to our operating leases:

The following table presents supplemental balance sheet information related to the Company's operating leases:

August 1, 2020

Operating lease right-of-use assets in Other assets

4 unchanged sentences

Details of the Company's operating leases are as follows:

Three Months Ended Six Months Ended

May 2, 2020 May 2, 2020

Three Months Ended Nine Months Ended

August 1, 2020 August 1, 2020

Lease expense $ 11,728 $ 33,864

4 unchanged sentences

Weighted average discount rate 3.2 % 3.2 %

The following table presents the maturities of our operating lease liabilities as of May 2, 2020:

The following table presents the maturities of the Company's operating lease liabilities as of August 1, 2020:

Fiscal year Operating Leases

4 unchanged sentences

Present value of operating lease liabilities $ 319,529

As of May 2, 2020, the Company has additional leases for office space and equipment, which have not yet commenced, of approximately $ 16.6 million.

These leases will commence during fiscal 2020, with lease terms of 10 to 25 years.

As of August 1, 2020, the Company has an additional lease for office space, which has not yet commenced, of approximately $ 9.1 million.

This lease will commence in fiscal 2020, with a lease term of 10 years.

Note 3 – Stock-Based Compensation and Shareholders' Equity

A summary of the Company’s stock option activity as of May 2, 2020 and changes during the six-month period then ended is presented below:

A summary of the Company’s stock option activity as of August 1, 2020 and changes during the nine-month period then ended is presented below:

(in thousands)

6 unchanged sentences

Options forfeited ( 97 ) $ 84.27

Options outstanding at May 2, 2020 4,896 $ 69.37 5.9 $ 169,549

Options exercisable at May 2, 2020 3,272 $ 60.59 4.9 $ 141,272

Options vested or expected to vest at May 2, 2020 (1) 4,770 $ 68.80 5.8 $ 167,821

Options outstanding at August 1, 2020 4,413 $ 70.18 5.73 $ 197,106

Options exercisable at August 1, 2020 2,845 $ 60.81 4.66 $ 153,749

Options vested or expected to vest at August 1, 2020 (1) 4,309 $ 69.67 5.67 $ 194,685

(1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future.

The number of options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.

During the six-month periods ended May 2, 2020 and May 4, 2019, the total intrinsic value of options exercised (i.e., the difference between the market price at exercise and the price paid by the employee to exercise the options) was $ 35.3 million and $ 99.7 million, respectively.

During the nine-month periods ended August 1, 2020 and August 3, 2019, the total intrinsic value of options exercised (i.e., the difference between the market price at exercise and the price paid by the employee to exercise the options) was $ 61.7 million and $ 120.7 million, respectively.

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

A summ ary of the Company’s restricted stock unit/award activity as of May 2, 2020 and changes during the six-month period then ended is presented below:

A summary of the Company’s restricted stock unit/award activity as of August 1, 2020 and changes during the nine-month period then ended is presented below:

Stock Units/Awards

6 unchanged sentences

Forfeited ( 196 ) $ 88.86

Restricted stock units/awards outstanding at May 2, 2020 4,368 $ 87.56

As of May 2, 2020, there was $ 349.4 million of total unrecognized compensation cost related to unvested stock-based awards comprised of stock options and restricted stock units/awards.

Restricted stock units/awards outstanding at August 1, 2020 3,899 $ 89.65

As of August 1, 2020, there was $ 316.0 million of total unrecognized compensation cost related to unvested stock-based awards comprised of stock options and restricted stock units/awards.

That cost is expected to be recognized over a weighted-average period of 1.4 years.

The total grant-date fair values of awards that vested during the six-month periods ended May 2, 2020 and May 4, 2019 were approximately $ 113.4 million and $ 106.4 million, respectively.

The total grant-date fair values of awards that vested during the nine-month periods ended August 1, 2020 and August 3, 2019 were approximately $ 157.9 million and $ 131.0 million, respectively.

Total stock-based compensation expense recognized was as follows:

Three Months Ended Six Months Ended

May 2, 2020 May 4, 2019 May 2, 2020 May 4, 2019

Three Months Ended Nine Months Ended

August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019

Cost of sales $ 4,508 $ 5,247 $ 13,428 $ 15,720

1 unchanged sentence

Selling, marketing, general and administrative 14,951 12,049 43,427 39,706

Special charges 943 — 943 —

Total stock-based compensation expense $ 39,560 $ 36,098 $ 112,961 $ 112,720

As of May 2, 2020 and November 2, 2019, the Company capitalized $ 5.9 million and $ 6.8 million, respectively, of stock-based compensation in Inventories on the Condensed Consolidated Balance Sheets.

As of August 1, 2020 and November 2, 2019, the Company capitalized $ 5.9 million and $ 6.8 million, respectively, of stock-based compensation in Inventories on the Condensed Consolidated Balance Sheets.

Common Stock Repurchases

As of May 2, 2020, the Company had repurchased a total of approximately 156.1 million shares of its common stock for approximately $ 6.3 billion under the Company's share repurchase program.

As of May 2, 2020, an additional $ 1.9 billion remains available for repurchase of shares under the current authorized program.

As of August 1, 2020, the Company had repurchased a total of approximately 156.1 million shares of its common stock for approximately $ 6.3 billion under the Company's share repurchase program.

As of August 1, 2020, an additional $ 1.9 billion remains available for repurchase of shares under the current authorized program.

The Company also repurchases shares in settlement of employee tax withholding obligations due upon the vesting of restricted stock units/awards or the exercise of stock options.

Given the current macroeconomic environment, the Company has temporarily suspended common stock repurchases under the authorized program.

Future repurchases of common stock will be dependent upon our financial position, results of operations, outlook, liquidity, and other factors deemed relevant by the Company.

Given the planned acquisition of Maxim (see Note 15, Acquisitions) , the Company has continued its temporary suspension of the common stock repurchase program, which was previously suspended in March 2020 as a result of the global macroeconomic environment.

Future repurchases of common stock will be dependent upon the Company's financial position, results of operations, outlook, liquidity, and other factors deemed relevant by the Company.

Analog Devices Foundation

5 unchanged sentences

Note 4 – Accumulated Other Comprehensive (Loss) Income

The following table provides the changes in accumulated other comprehensive (loss) income (AOCI) by component and the related tax effects during the first six months of fiscal 2020.

The following table provides the changes in accumulated other comprehensive (loss) income (AOCI) by component and the related tax effects during the first nine months of fiscal 2020.

Foreign currency translation adjustment

7 unchanged sentences

Effect of Accounting Standards Update 2018-02

May 2, 2020 $ ( 37,136 ) $ ( 201,805 ) $ ( 38,061 ) $ ( 277,002 )

— ( 2,379 ) — ( 2,379 )

August 1, 2020 $ ( 29,879 ) $ ( 203,410 ) $ ( 39,640 ) $ ( 272,929 )

The amounts reclassified out of AOCI into the Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Shareholders' Equity with presentation location during each period were as follows:

Three Months Ended Six Months Ended

Comprehensive Income Component May 2, 2020 May 4, 2019 May 2, 2020 May 4, 2019 Location

Three Months Ended Nine Months Ended

Comprehensive Income Component August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019 Location

Unrealized holding losses (gains) on derivatives

5 unchanged sentences

79 ( 384 ) ( 488 ) ( 1,187 ) Tax

Effect of Accounting Standards Update 2018-02 — — ( 2,379 ) — Retained earnings

Effect of Accounting Standards Update 2018-02

— — ( 2,379 ) — Retained earnings

$ ( 714 ) $ 1,534 $ ( 702 ) $ 5,927 Net of tax

4 unchanged sentences

Total amounts reclassified out of AOCI, net of tax $ ( 210 ) $ 1,717 $ 767 $ 6,495

The Company estimates that settlements of forward foreign currency derivative instruments included in AOCI that will be reclassified into earnings will be immaterial within the next twelve months.

The Company estimates $ 7.2 million, net of tax, of gains on forward foreign currency derivative instruments included in AOCI will be reclassified into earnings within the next twelve months.

Realized gains or losses on investments are determined based on the specific identification basis and are recognized in nonoperating expense (income).

6 unchanged sentences

The following table sets forth the computation of basic and diluted earnings per share:

Three Months Ended Six Months Ended

May 2, 2020 May 4, 2019 May 2, 2020 May 4, 2019

Three Months Ended Nine Months Ended

August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019

Net Income $ 362,665 $ 362,374 $ 834,235 $ 1,085,317

13 unchanged sentences

Outstanding stock-based awards 384 446 487 963

*The amounts in the three-month and six-month periods ended May 2, 2020 are not material.

*The amounts in the three-month and nine-month periods ended August 1, 2020 are not material.

Note 6 – Special Charges

The following table is a quarterly roll-forward from November 2, 2019 to May 2, 2020 of the employee separation and exit cost accruals established related to existing restructuring actions:

Accrued Restructuring Closure of Manufacturing Facilities Reduction of Operating Costs Action Early Retirement Action Repositioning Action

The following table is a quarterly roll-forward from November 2, 2019 to August 1, 2020 of the employee separation and exit cost accruals established related to existing restructuring actions:

Accrued Restructuring Closure of Manufacturing Facilities Repositioning Action Other Actions

Balance at November 2, 2019 $ 50,401 $ 58,895 $ 5,523

First quarter fiscal 2020 special charges 1,982 — — 9,154

First quarter fiscal 2020 special charges, net 1,982 9,154 —

Severance and other payments ( 908 ) ( 29,597 ) ( 471 )

1 unchanged sentence

Balance at February 1, 2020 $ 51,445 $ 38,431 $ 5,052

Second quarter fiscal 2020 special charges 1,320 — — —

Second quarter fiscal 2020 special charges, net 1,320 — —

Severance and other payments ( 2,564 ) ( 15,025 ) ( 327 )

1 unchanged sentence

Balance at May 2, 2020 $ 50,184 $ 23,279 $ 4,725

Current - accrued liabilities $ 27,633 $ 510 $ 4,215 $ 23,279

Other non-current liabilities $ 22,551 $ — $ — $ —

Repositioning Action

The Company recorded special charges of $ 97.2 million on a cumulative basis through May 2, 2020, as a result of organizational initiatives to reposition the Company's global workforce skill set to align with the Company's long-term strategic plan.

Approximately $ 83.0 million of the total charges was for severance and fringe benefit costs in accordance with either the Company's ongoing benefit plan or statutory requirements for the impacted engineering and selling, marketing, general and administrative (SMG&A) employees.

The remaining $ 14.2 million of the charges were recorded in fiscal 2019 and related to the write-off of acquired intellectual property due to the Company's decision to discontinue certain product development strategies.

Third quarter fiscal 2020 special charges, net ( 1,402 ) 33,232 —

Severance and other payments ( 1,360 ) ( 12,824 ) ( 198 )

Effect of foreign currency on accrual 17 172 —

Balance at August 1, 2020 $ 47,439 $ 43,859 $ 4,527

Accrued liabilities $ 47,439 $ 43,859 $ 4,527

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Repositioning Action

The Company recorded special charges of $ 130.5 million on a cumulative basis through August 1, 2020, as a result of organizational initiatives to better align the global workforce with the Company's long-term strategic plan.

Approximately $ 116.3 million of the total charges was for severance and fringe benefit costs in accordance with either the Company's ongoing benefit plan or statutory requirements for the impacted manufacturing, engineering and selling, marketing, general and administrative (SMG&A) employees.

Closure of Manufacturing Facilities

The Company recorded special charges of $ 55.3 million on a cumulative basis through May 2, 2020 as a result of its decision to consolidate certain wafer and test facility operations acquired as part of the acquisition of Linear Technology Corporation (Linear).

The Company recorded special charges of $ 53.9 million on a cumulative basis through August 1, 2020 as a result of its decision to consolidate certain wafer and test facility operations acquired as part of the acquisition of Linear Technology Corporation (Linear).

The Company plans to close its Hillview wafer fabrication facility located in Milpitas, California and its Singapore test facility in the fiscal year ending October 30, 2021.

3 unchanged sentences

These one-time termination benefits are being recognized over the future service period required for employees to earn these benefits.

Note 7 – Property, Plant and Equipment

Property, plant and equipment (PP&E) is identified as held for sale when it meets the held for sale criteria of Accounting Standards Codification Topic 360, Property, Plant, and Equipment (ASC 360).

Depreciation is not recorded for assets that are classified as held for sale.

When an asset meets the held for sale criteria, its carrying value is reclassified from the relevant PP&E line items and into current assets on the balance sheet, where it remains until either it is sold or it no longer meets the held for sale criteria.

The fair value of assets held for sale is considered to be a Level 3 fair value measurement, and is determined based on the use of appraisals and input from market participants.

As discussed in Note 6, Special Charges , the Company is planning to transition testing operations currently handled in its Singapore facility to its facilities in Penang, Malaysia and the Philippines, in addition to its outsourced assembly and test partners.

Accordingly, management has entered into an agreement to sell the facility in Singapore in May 2021 and has determined that this facility and certain equipment therein have met the held for sale criteria as specified in ASC 360.

No write-down to fair value was required upon this designation, as the fair value of the asset group, less costs to sell, was greater than its carrying value.

As shown below, this carrying value was reclassified from PP&E to Prepaid expenses and other current assets as of August 1, 2020.

August 1, 2020

Land and buildings $ 36,451

Machinery and equipment 1,468

Office equipment 197

Leasehold improvements 5,744

Less accumulated depreciation and amortization ( 21,706 )

Net property, plant and equipment reclassified to Prepaid expenses and other current assets $ 22,154

Note 8 – Segment Information

The Company designs, develops, manufactures and markets a broad range of integrated circuits.

The Company operates and tracks its results in one reportable segment based on the aggregation of nine operating segments, one of which was added in the three-months ended May 2, 2020 as a result of a continued refinement of the Company's organizational structure.

The Company operates and tracks its results in one reportable segment based on the aggregation of eight operating segments, which reflects the consolidation of one operating segment into the existing operating segments in the three-months ended August 1, 2020 as a result of a continued refinement of the Company's organizational structure.

Due to the current macroeconomic environment, in the second quarter of fiscal 2020, the Company elected to perform a quantitative goodwill impairment analysis for one of its reporting units.

As a result of this analysis, management concluded that the reporting unit’s fair value exceeded its carrying amount as of the May 2, 2020 assessment date and no risk of impairment existed.

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Revenue Trends by End Market

5 unchanged sentences

Three Months Ended

May 2, 2020 May 4, 2019

August 1, 2020 August 3, 2019

Revenue % of Revenue* Y/Y% Revenue % of Revenue*

4 unchanged sentences

Total revenue $ 1,456,136 100 % ( 2 ) % $ 1,480,143 100 %

Six Months Ended

May 2, 2020 May 4, 2019

Nine Months Ended

August 1, 2020 August 3, 2019

Revenue % of Revenue* Y/Y% Revenue % of Revenue*

9 unchanged sentences

Distributors are customers that buy products with the intention of reselling them.

Direct customers are non-distributor customers and consist primarily of original equipment

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

manufacturers (OEMs).

Direct customers are non-distributor customers and consist primarily of original equipment manufacturers (OEMs).

Other customers include the U.S.

1 unchanged sentence

Three Months Ended

May 2, 2020 May 4, 2019

August 1, 2020 August 3, 2019

Channel Revenue % of Revenue* Revenue % of Revenue*

3 unchanged sentences

Total revenue $ 1,456,136 100 % $ 1,480,143 100 %

Six Months Ended

May 2, 2020 May 4, 2019

Nine Months Ended

August 1, 2020 August 3, 2019

Channel Revenue % of Revenue* Revenue % of Revenue*

4 unchanged sentences

* The sum of the individual percentages may not equal the total due to rounding.

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note 9 – Fair Value

6 unchanged sentences

Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.

The tables below, set forth by level, presents the Company’s financial assets and liabilities, excluding accrued interest components that were accounted for at fair value on a recurring basis as of May 2, 2020 and November 2, 2019.

The tables exclude cash on hand and assets and liabilities that are measured at historical cost or any basis other than fair value.

As of May 2, 2020 and November 2, 2019, the Company held $ 193.9 million and $ 231.4 million, respectively, of cash and held-to-maturity investments that were excluded from the tables below.

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of August 1, 2020 and November 2, 2019, the Company held $ 144.8 million and $ 231.4 million, respectively, of cash and held-to-maturity investments that were excluded from the tables below.

August 1, 2020

Fair Value measurement at

7 unchanged sentences

Deferred compensation investments 52,956 — 52,956

Total assets measured at fair value $ 638,871 $ — $ 638,871

Forward foreign currency exchange contracts (1) — 8,400 8,400

Total assets measured at fair value $ 998,427 $ 8,400 $ 1,006,827

Interest rate derivatives $ — $ 258,071 $ 258,071

2 unchanged sentences

See Note 10, Derivatives, in these Notes to Condensed Consolidated Financial Statements for more information related to the Company's master netting arrangements.

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

November 2, 2019

15 unchanged sentences

Interest rate derivatives — The fair value of the interest rate derivatives is estimated using a discounted cash flow analysis based on the contractual terms of the derivative.

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

hedges, is based on the estimated amount the Company would receive if it sold these agreements at the reporting date taking into consideration current interest rates as well as the creditworthiness of the counterparty for assets and the Company’s creditworthiness for liabilities.

Forward foreign currency exchange contracts — The estimated fair value of forward foreign currency exchange contracts, which includes derivatives that are accounted for as cash flow hedges and those that are not designated as cash flow hedges, is based on the estimated amount the Company would receive if it sold these agreements at the reporting date taking into consideration current interest rates as well as the creditworthiness of the counterparty for assets and the Company’s creditworthiness for liabilities.

The fair value of these instruments is based upon valuation models using current market information such as strike price, spot rate, maturity date and volatility.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

The table below presents the estimated fair value of certain financial instruments not recorded at fair value on a recurring basis.

Held for sale assets — The fair value of assets held for sale is considered to be a Level 3 fair value measurement, and is determined based on the use of appraisals and input from market participants.

Debt — The table below presents the estimated fair value of certain financial instruments not recorded at fair value on a recurring basis.

The carrying amounts of the term loan approximates fair value.

1 unchanged sentence

The fair values of the senior unsecured notes are obtained from broker prices and are classified as Level 1 measurements according to the fair value hierarchy.

May 2, 2020 November 2, 2019

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

August 1, 2020 November 2, 2019

Principal Amount Outstanding Fair Value Principal Amount Outstanding Fair Value

26 unchanged sentences

dollar, primarily the Euro;

other significant exposures include the British Pound, Philippine Peso, the Japanese Yen.

other significant exposures include the British Pound, Philippine Peso and the Japanese Yen.

Derivative instruments are employed to eliminate or minimize certain foreign currency exposures that can be confidently identified and quantified.

4 unchanged sentences

The gain or loss on the derivative is recorded as a component of AOCI in shareholders’ equity and is reclassified into earnings in the same line item on the Consolidated Statements of Income as the impact of the hedged transaction in the same period during which the hedged transaction affects earnings.

The total notional amounts of forward foreign currency derivative instruments designated as hedging instruments of cash flow hedges denominated in Euros, British Pounds, Philippine Pesos and Japanese Yen as of May 2, 2020 and November 2, 2019 were $ 195.1 million and $ 191.1 million, respectively.

The fair values of forward foreign currency derivative instruments designated as hedging instruments in the Company’s Condensed Consolidated Balance Sheets as of May 2, 2020 and November 2, 2019 were as follows:

The total notional amounts of forward foreign currency derivative instruments designated as hedging instruments of cash flow hedges denominated in Euros, British Pounds, Philippine Pesos and Japanese Yen as of August 1, 2020 and November 2, 2019 were $ 202.8 million and $ 191.1 million, respectively.

The fair values of forward foreign currency derivative instruments designated as hedging instruments in the Company’s Condensed Consolidated Balance Sheets as of August 1, 2020 and November 2, 2019 were as follows:

Fair Value At

Balance Sheet Location May 2, 2020 November 2, 2019

Balance Sheet Location August 1, 2020 November 2, 2019

Forward foreign currency exchange contracts Prepaid expenses and other current assets $ 9,811 $ 65

Forward foreign currency exchange contracts Accrued liabilities $ 1,176 $ —

As of May 2, 2020 and November 2, 2019, the total notional amounts of undesignated hedges related to forward foreign currency exchange contracts were $ 14.9 million and $ 55.3 million, respectively.

The fair values of these hedging instruments in the Company’s Condensed Consolidated Balance Sheets were immaterial as of May 2, 2020 and November 2, 2019.

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of August 1, 2020 and November 2, 2019, the total notional amounts of undesignated hedges related to forward foreign currency exchange contracts were $ 32.3 million and $ 55.3 million, respectively.

The fair values of these hedging instruments in the Company’s Condensed Consolidated Balance Sheets were immaterial as of August 1, 2020 and November 2, 2019.

All the Company’s derivative financial instruments are eligible for netting arrangements that allow the Company and its counterparties to net settle amounts owed to each other.

Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's Condensed Consolidated Balance Sheets on a net basis.

As of May 2, 2020 and November 2, 2019, none of the netting arrangements involved collateral.

As of August 1, 2020 and November 2, 2019, none of the netting arrangements involved collateral.

ANALOG DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents the gross amounts of the Company's forward foreign currency exchange contract derivative assets and liabilities and the net amounts recorded in the Company's Condensed Consolidated Balance Sheets:

May 2, 2020 November 2, 2019

Gross amount of recognized liabilities $ ( 3,185 ) $ ( 2,828 )

Gross amounts of recognized assets offset in the Condensed Consolidated Balance Sheets 1,571 2,828

Net liabilities presented in the Condensed Consolidated Balance Sheets $ ( 1,614 ) $ —

As of May 2, 2020 and November 2, 2019, the fair values of the interest rate swap agreement designated as a cash flow hedge were $ 245.1 million and $ 138.8 million, respectively, and are included within Accrued liabilities in the Company's Condensed Consolidated Balance Sheets.

August 1, 2020 November 2, 2019

Gross amount of recognized assets $ 10,059 $ 2,828

Gross amounts of recognized liabilities offset in the Condensed Consolidated Balance Sheets ( 1,659 ) ( 2,828 )

Net assets presented in the Condensed Consolidated Balance Sheets $ 8,400 $ —

As of August 1, 2020 and November 2, 2019, the fair value of the interest rate swap agreement designated as a cash flow hedge was $ 258.1 million and $ 138.8 million, respectively, and is included within Accrued liabilities in the Company's Condensed Consolidated Balance Sheets.

The market risk associated with the Company’s derivative instruments results from currency exchange rate or interest rate movements that are expected to offset the market risk of the underlying transactions, assets and liabilities being hedged.

The counterparties to the agreements relating to the Company’s derivative instruments consist of a number of major international financial institutions with high credit ratings.

Based on the credit ratings of the Company’s counterparties as of May 2, 2020 and November 2, 2019, nonperformance is not perceived to be a material risk.

Based on the credit ratings of the Company’s counterparties as of August 1, 2020 and November 2, 2019, nonperformance is not perceived to be a material risk.

Furthermore, none of the Company’s derivatives are subject to collateral or other security arrangements and none contain provisions that are dependent on the Company’s credit ratings from any credit rating agency.

13 unchanged sentences

Should such a change occur, the Company may be authorized to increase the covenant back to 4.0 to 1.0.

As of May 2, 2020, the Company was compliant with these covenants.

As of August 1, 2020, the Company was compliant with these covenants.

ANALOG DEVICES, INC.

7 unchanged sentences

The 2025 Notes were issued pursuant to an indenture, as supplemented by a supplemental indenture, and the indenture and supplemental indenture contain certain covenants, events of default and other customary provisions.

As of May 2, 2020, the Company was in compliance with these covenants.

As of August 1, 2020, the Company was in compliance with these covenants.

On March 12, 2020, the Company repaid $ 300.0 million of principal on its 2.85 % senior unsecured notes that were contractually due in March 2020.

7 unchanged sentences

The Revolving Credit Agreement contains the customary representations and warranties, and affirmative and negative covenants and events of default applicable to the Company and its subsidiaries.

As of May 2, 2020, the Company was in compliance with these covenants.

As of August 1, 2020, the Company was in compliance with these covenants.

Note 12 – Inventories

Inventories at May 2, 2020 and November 2, 2019 were as follows:

May 2, 2020 November 2, 2019

Inventories at August 1, 2020 and November 2, 2019 were as follows:

August 1, 2020 November 2, 2019

Raw materials $ 33,234 $ 35,447

3 unchanged sentences

Note 13 – Income Taxes

The Company’s effective tax rates for the three- and six-month periods ended May 2, 2020 and May 4, 2019 were below the U.S.

The Company’s effective tax rates for the three- and nine-month periods ended August 1, 2020 and August 3, 2019 were below the U.S.

statutory tax rate of 21.0 %, due to lower statutory tax rates applicable to the Company's operations in the foreign jurisdictions in which it earns income.

The tax rates for the three- and nine-month periods ended August 1, 2020 were also impacted by discrete income tax benefits of $ 33.7 million recorded in the third quarter of fiscal 2020, comprised primarily of $ 25.9 million of income tax benefits resulting from the resolution of the Internal Revenue Service (IRS) audit of Linear’s pre-acquisition federal income tax returns for Linear's fiscal years 2015 through 2017 and other income tax benefits recorded upon filing of the Company's federal income tax return for fiscal 2019.

The Company has numerous audits ongoing throughout the world including:

an Internal Revenue Service income tax audit for Linear’s pre-acquisition fiscal years 2015, 2016 and 2017;

an IRS income tax audit for the fiscal year ended November 3, 2018 (fiscal 2018);

state and local tax audits;

and international audits, including the transfer pricing audit in Ireland discussed below.

The Company was also notified by the Internal Revenue Service that the Company was selected for audit of the fiscal year ended November 3, 2018 (fiscal 2018).

ANALOG DEVICES, INC.

1 unchanged sentence

The Company’s Ireland tax returns prior to the fiscal year ended November 2, 2013 are no longer subject to examination.

During the fourth quarter of fiscal 2018, the Company’s Irish tax resident subsidiary received an assessment for the fiscal year ended November 2, 2013 (fiscal 2013) of approximately € 43.0 million, or $ 47.3 million (as of May 2, 2020), from the Irish Revenue Commissioners (Irish Revenue).

During the fourth quarter of fiscal 2018, the Company’s Irish tax resident subsidiary received an assessment for the fiscal year ended November 2, 2013 (fiscal 2013) of approximately € 43.0 million, or $ 50.9 million (as of August 1, 2020), from the Irish Revenue Commissioners (Irish Revenue).

This assessment excludes any penalties and interest.

40 unchanged sentences

Condensed Consolidated Statements of Cash Flows.

Please refer to Note 2 , Leases for information regarding the Company's lease portfolio as of May 2, 2020.

Please refer to Note 2 , Leases for information regarding the Company's lease portfolio as of August 1, 2020.

Comprehensive Income

1 unchanged sentence

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02).

ASU 2018-02 allows stranded tax effects resulting from changes to tax legislation to be reclassified from accumulated other comprehensive income (AOCI) to retained earnings.

ASU 2018-02 allows stranded tax effects resulting from changes to tax legislation to be reclassified from AOCI to retained earnings.

The Company adopted this ASU during the first quarter of fiscal 2020 and therefore applied the ASU in the period of adoption using the specific identification approach.

16 unchanged sentences

ASU 2018-14 is effective for the Company in the first quarter of the fiscal year ending October 30, 2021 (fiscal 2021).

The Company is currently evaluating the adoption date.

The adoption of ASU 2018-14 will modify the Company's disclosures for defined benefit plans and other post-retirement plans but is not expected to impact its financial position or results of operations.

7 unchanged sentences

Once elected, an entity would recognize the difference between the carrying amount and the fair value of the financial instrument as part of the cumulative effect adjustments associated with the adoption of ASU 2016-13.

ASU 2019-11 allows entities to exclude the accrued interest component of amortized cost from various disclosures required by Accounting Standards Codification 326.

ASU 2019-11 allows entities to exclude the accrued interest component of amortized cost from various disclosures required by ASC 326.

These ASUs are effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years;

8 unchanged sentences

The Company is currently evaluating the adoption date and impact, if any, adoption will have on its financial position and results of operations.

Note 15 – Acquisitions

Proposed acquisition of Maxim Integrated Products, Inc.

On July 12, 2020, the Company entered into a definitive agreement (the Merger Agreement) to acquire Maxim, an independent manufacturer of innovative analog and mixed-signal products and technologies.

Under the terms of the Merger Agreement, Maxim stockholders will receive, for each outstanding share of Maxim common stock, 0.630 of a share of the Company’s common stock at the closing.

The estimated merger consideration is approximately $ 20.0 billion based on the closing price of the Company's common stock on August 14, 2020.

The value of the merger consideration will fluctuate based upon changes in the price of the Company's common stock and the number of shares of Maxim common stock, restricted stock awards and restricted stock unit awards outstanding on the closing date.

The transaction is subject to customary closing conditions, including antitrust regulatory clearances, approval by Maxim stockholders, and approval by the Company's shareholders of the issuance of shares of the Company's common stock.

The Merger Agreement includes termination rights for both the Company and Maxim.

Maxim and the Company have each agreed to pay a termination fee of $ 725.0 million in cash to the other party if the Merger Agreement is terminated in certain circumstances involving an acquisition proposal, a change of recommendation or a breach of the other party’s non-solicitation obligations under the Merger Agreement.

In addition, the Company may be required to pay Maxim a regulatory termination fee of $ 830.0 million in cash if the Merger Agreement is terminated in certain circumstances involving the failure to obtain required regulatory approvals.

In the third quarter of fiscal 2020, the Company incurred $ 9.1 million of transaction-related costs recorded within Selling, marketing, general and administrative expenses in the Company's Condensed Consolidated Statement of Income.

Note 16 – Subsequent Events

On May 19, 2020, the Board of Directors of the Company declared a cash dividend of $ 0.62 per outstanding share of common stock.

The dividend will be paid on June 9, 2020 to all shareholders of record at the close of business on May 29, 2020 and is expected to total approximately $ 228.4 million.

On August 18, 2020, the Board of Directors of the Company declared a cash dividend of $ 0.62 per outstanding share of common stock.

The dividend will be paid on September 9, 2020 to all shareholders of record at the close of business on August 28, 2020 and is expected to total approximately $ 228.9 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements